The Impact of Taxation on Investment and Economic Development in Nigeria

Abstract

This study examines the impact of taxation on investment and economic growth in Nigeria from 1980-2010. The ordinary least square method of multiple regression analysis was used to analyze the data. The annual data were sourced from the central bank of Nigeria statistical bulletin and NBS. The result of the analysis showed in conformity to our prior expectation because the parameter estimates of corporate income tax (CIT) and personal income tax (PIT) appears with negative signs, this means that an inverse relationship exist between taxation and investment. The economic implication of the result is that a one percent (1%) increase in CIT will result in decrease in the level of investment in Nigeria. Consequently, an increase in PIT will result in decrease in the level of investment. Finally, the result therefore showed that taxation is negatively related to the level of investment and the output of goods and services (GDP) and is positively related to government expenditure in Nigeria. We also observed that taxation statistically is significant factor influencing investment, GDP and government expenditure in Nigeria. Based on the result of our findings, it is recommended that the government of Nigeria should use taxation to achieve its set target that will enhance economic growth and development.

DOI: 10.5901/ajis.2014.v3n4p209